Investing

Why India May Be the Best Place for Investors in 2018 and Beyond

Wipro Ltd. (NYSE: WIT), a $22 billion IT-consulting business in India, was last seen trading at $5.31. Its 52-week range is $4.50 to $6.40, and its consensus target price (from just a few analysts) was last seen at $4.91.

Dr. Reddy’s Laboratories Ltd. (NYSE: RDY) is a top pharma player in India for generics and branded drugs, and it operates internationally. Its U.S.-listed shares were trading at $35.53, with a consensus analyst target of $30.51 and a 52-week range of $29.83 to $47.75. Dr. Reddy’s has a market cap of $6 billion.

There are several other smaller ETFs that trade under 100,000 shares on most days. These have all seen big gains, but investors need to give these much more detailed reviews and deeper research than the major ETFs and funds listed above.

VanEck Vectors India Small-Cap ETF (NYSEAMERICAN: SCIF) was last seen trading at $65.08, and it has a 52-week range of $39.68 to $65.23. Its assets under management are $377 million. The ETF aims to win off the boom in India’s middle class sending up demand for discretionary goods and services, homebuilding and infrastructure. The underlying index had over 150 constituents as of the end of 2016, and it included offshore companies generating 50% or more of their revenues in India. The top 25 holdings have an index weighting of 1% to 2%, so no single company or sector dominates the ETF.

Columbia India Infrastructure ETF (NYSEAMERICAN: INXX) was trading at $15.41, within a 52-week range of $10.25 to $15.80. The underlying India Infrastructure Index is a maximum of 30 stocks that come with a free-float adjusted market cap-weighting to track companies in the infrastructure industry in India. Its top 10 holdings have an average weighting of about 5% each.

There is also the iShares MSCI India Small-Cap ETF (NYSEAMERICAN: SMIN), where the $50.87 share price compares to a 52-week range of $31.84 to $50.99. This ETF has just $281 million in assets and tracks the investment results of an index composed of small-capitalization Indian equities. This ETF’s top 10 holdings only have weightings of 1% to 2% of the entire fund, to keep any one company or sector from dominating the whole ETF. All in all, it holds more than 200 local stocks in India.

And for the fearless investor class, there is the triple-leverage Direxion Daily MSCI India Bull 3x ETF (NYSEAMERICAN: INDL). Trading at $96.10, it has a 52-week range is $41.90 to $99.88. This crazy ETF seeks daily investment results 300% of the daily performance of the MSCI India Index. Just do not forget about the price erosion that can take place through time in leveraged ETFs and do not forget that the “daily ETFs” can also come with serious tracking errors. Many online brokerage firms have gone so far as put triple-leverage ETFs on lists of stocks that should be avoided.

Many BRIC investors use the iShares MSCI Emerging Markets ETF (NYSEARCA: EEM) as the top way to invest in major emerging markets. This covers many spots in the trade for Brazil, Russia, India and China. The problem with this emerging markets ETF is that most of the top holdings are based in China, Korea and Taiwan. In fact, the exposure (rounded) for nations is 30% for China, 15% for South Korea, over 11% for Taiwan, and just over 8% for India.

The MSCI Emerging Markets ETF was last seen up a sharp 35% year to date in 2017, as of the end of November. This was above the year-to-date gains for the major India stock market ETFs so far in 2017:

  • WisdomTree India Earnings is up 34.8%.
  • iShares India 50 is up 31.0%.
  • The India Fund up 30.9%.

The CIA World Factbook says of India’s outlook over time:

The outlook for India’s long-term growth is moderately positive due to a young population and corresponding low dependency ratio, healthy savings and investment rates, and increasing integration into the global economy. However, long-term challenges remain significant, including: India’s discrimination against women and girls, an inefficient power generation and distribution system, ineffective enforcement of intellectual property rights, decades-long civil litigation dockets, inadequate transport and agricultural infrastructure, limited non-agricultural employment opportunities, high spending and poorly targeted subsidies, inadequate availability of quality basic and higher education, and accommodating rural-to-urban migration.

Investors have to consider many items before blindly chasing higher GDP growth. Many factors can get in the way, and India’s political changes have often come with great changes from the prior regime. The long and short is that India is a nation that comes with many risks and opportunities for investors, but its growth is usually considered to be less government-driven than in China. Keeping its 7% and higher growth in mind, the United States has struggled for years to even get back to 3% GDP growth, and Germany has not even been able to run above 2% growth since the eurozone’s woes came up.